Speculators Make Record Bet On Volatility Rise

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We’ve discussed on several occasions using the CFTC’s “Commitment Of Traders” report as a gauge of sentiment within a certain market. To refresh, the CFTC tracks the net positioning of various groups of traders in the futures market in the COT report. One such group is called Commercial Hedgers. As their name implies, their main function in the futures market is to hedge. On the other side of the ledger – and normally with a mirror image position – is the Non-Commercial Speculator group. These Speculators are typically funds engaged in, you guessed it, speculating.
Speculators’ positions tend to follow prices while Hedgers’ positions generally move in the opposite direction. Thus, it is almost always the case that Speculators will be incorrectly positioned – and to an extreme – at major turning points in a market. Thus, on a contrarian basis, investors may theoretically profit by fading those Speculator extremes. On the surface, such an extreme appears to be in place in the VIX futures market.
As of last week’s COT report, Speculators were net long the largest number of VIX futures in the history of the contract.